Tariff talks are unlikely to go as planned

It is only a week away from the Aug 1 deadline when the 36% reciprocal tariff levied on Thai exports to the US will take effect.

- Chartchai Parasuk

However, US President Donald Trump has left the door open for countries to negotiate for lower tariffs. Several countries have reached agreements with the US after receiving tariff rate notification letters on July 7th, such as Indonesia, Japan and the Philippines.

All have to yield to the US demand for more access to their economies, plus other conditions. Even Japan has agreed to allow more access to its closely guarded rice market.

Indonesia is an important case study for Thailand as its 32% reciprocal tariff was reduced to 19%. Thailand is looking for a similar tariff reduction deal. Much like Vietnam and the Philippines, Indonesia has given free export access to its 280-million people market.

Moreover, products exported to the US will be taxed differently between Indonesianmade products (19%) and transshipment products (19%+ reciprocal tariff rate for transshipping countries). Open access and two-tier tax rates are not the only conditions, though more than US$200 billion in purchase pledges for American goods, ranging from energy products to 50 Boeing jets, is included.

I am surprised that nobody asked why Indonesia agreed to such strict conditions, particularly compared to Vietnam's which has no purchase pledge. Indonesia has a small trade surplus of $17.8 billion (572.5 billion baht) with the US while Vietnam has a $123.5 billion trade surplus. Based on the size of the trade gaps, Indonesia should have had much softer conditions, not harder. The $200 billion purchase alone is able to close the US-Indonesia trade gap for 10 years.

This is my own reading of the situation.

The reason why Indonesia went all out to win a lower tariff rate was not about trade, but to gain investment appeal for the country. With a 32% tariff rate compared to Vietnam's 20%, foreign investors would have been more likely to bypass Indonesia for Vietnam.